Standing Committee D

[Sir John Butterfill in the Chair]

National Insurance Contributions and Statutory Payments Bill

Resolved, 
 That—
 (1) during proceedings on the National Insurance Contributions and Statutory Payments Bill, in addition to its first meeting at 9.30 a.m. on Tuesday 13th January, the Standing Committee shall meet at—
 (a) 2.30 p.m. on Tuesday 13th January, and
 (b) 9.30 a.m. and 2.30 p.m. on Thursday 15th January;
 (2) proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 5.00 p.m. on Thursday 15th January.—[Dawn Primarolo.]

Clause 1 - Payment of Class 1 contributions: Great Britain

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Good morning, Mr. Butterfill. I am delighted to see you in the Chair this morning, and to see you looking so well.
 First, I must apologise to the hon. Members for Hertford and Stortford (Mr. Prisk) and for North Norfolk (Norman Lamb). I understand that they did not receive their copies of the draft regulations until this morning, although we tried to get them to all members of the Committee by yesterday afternoon. None the less, I hope that the information in them will assist the hon. Gentlemen in debating the Bill, although they will not have had time to study them for this morning's sitting.

Norman Lamb: It seems extraordinary that the Department could not have got the draft regulations to us before today. Given the time that such legislation has been under consideration—we heard only last week that consultation on it ended some two years ago—surely it would have been possible to have given us 24 hours' notice of the draft regulations.

Dawn Primarolo: I have been remiss, Sir John. Congratulations, by the way—I should study such things much more closely.
 The regulations are still in draft form; more discussion is needed as they depend on other legislation. I take the point made by the hon. Member for North Norfolk, but those with the parliamentary skills necessary to draft our regulations are under a great deal of pressure, and it was a question of priorities. 
 I did my best to ensure that members of the Committee received the regulations before our first sitting, but the hon. Gentleman may remember that I undertook to ensure that the Committee had them before the Bill had completed its parliamentary proceedings. I do not wish to be churlish, and I did my best to ensure that the draft regulations were available in time, but given the nature of the work and the demands made on staff that is not always possible. If my officials had to draft only this Bill things would be so much easier, but I take the hon. Gentleman's point.

Mark Prisk: The Paymaster General promised on Second Reading to provide the draft regulations, and I am satisfied that she has made the effort to do so, but will she reflect on the fact that we will not be able to scrutinise the Bill as we would wish, having had virtually no time to read the regulations and thus to understand how the Bill works? Given that this is a technical Bill, the technical details of the secondary legislation are even more relevant. Will she further agree to ensure that we are given the opportunity to raise such points on Report, even though that is not normally the convention?

Dawn Primarolo: Of course, it is open to Opposition Members to table amendments on Report, as it is for them to follow the procedures in respect of any Bill. I take the hon. Gentleman's point, but given, as he says, that this is largely a technical Bill and that outside the House there is general agreement with the provisions, I hope that that will not be necessary. However, I am sure that my hon. Friend the Member for Luton, South (Margaret Moran), the Government Whip, listened very carefully, as did Opposition Whips, to the point about the need to be able to scrutinise draft regulations and I am sure that, should the need arise, it will be possible for Opposition Members to table subsequent amendments.
 I move to clause 1, which extends employers' ability to recover class 1 primary national insurance contributions paid on behalf of their employees and ex-employees on security-based earnings. It allows the employer, with the agreement of the employee, to withhold shares to the value of the national insurance paid on the employee's behalf in, for current employees, the year in which the gain arises and, for ex-employees, the year of cessation and the year following cessation. 
 The first part of the Bill concerns national insurance contributions payable on earnings paid in the form of securities. Most security-based earnings are paid in the form of shares. The Government, as is to be expected, encourage a wider share-owning population—that is at the heart of our enterprise and productivity agenda. The purpose of clause 1 is to increase the choices available to employers and employees to meet the primary national insurance liability that arises when employees are rewarded through payment in the form of shares or other securities. It might help if I explain to the Committee how national insurance contributions are paid in the case of share-based earnings. 
 The employer is liable for secondary class 1 contributions and the employee for primary class 1 contributions at the point at which the gain on the shares arises. However, in the first instance, the employer is liable to pay the primary national insurance to the Inland Revenue and may recover it from the employee, subject to certain conditions. Those conditions form the nub of the clause. 
 It is necessary to attach some new rules to how an employer recovers payments from employees. Employees need to be protected by a basic framework to ensure that they are not subjected to hardship because of unreasonable deductions being made from their earnings, such as an employer deducting a year's worth of primary national insurance in one go. In the normal course of events, should an employer be unable to deduct the primary national insurance due at the normal time when earnings are paid, he or she may catch up by making further recoveries, but only from cash earnings in the year in which the earnings were paid and at an amount that is no more than the normal primary national insurance due on that month's earnings. 
 On most occasions the employer will be able to deduct the primary national insurance immediately from the cash earnings paid to the employee. However, when making a payment of share-based earnings, there is no cash from which the primary contributions can be deducted. Therefore, we recognise the need to ensure that the conditions restricting recovery of the primary contributions relating to share-based earnings are appropriate. 
 We do not want to penalise employers who reward their employees with share-based earnings by making it difficult for them to recover the primary contributions that they have paid to the Inland Revenue on behalf of their employees and are therefore entitled to recover. 
 We have already taken steps to help employers manage such recoveries. We amended regulations last year, which give employers an additional year—the year after the payment of the share-based earnings—in which they can deduct the national insurance from the employee's earnings so as to deal with circumstances where the gain from the shares arises towards the end of the financial year. We also removed the limits on the amount that can be deducted from the employee's future earnings where national insurance liability arises on share-based earnings. 
 There are two instances where an employer can recover primary national insurance contributions from an employee's non-monetary earnings. With the employee's written agreement the employer can withhold an amount of shares equal to the value of the primary contributions paid on their behalf, when the employee has been paid share-based earnings after they have ceased employment but during the year of cessation, or when the employee is ceasing employment in that year and there are insufficient future cash earnings from which to recover the primary contributions. 
 The purpose of the clause is to extend such provisions further. We are enabling employers, with the written agreement of the employee, to withhold an amount of shares equal to the value of the primary contributions paid on their behalf for current employees, as well as those who have ceased to work for them. We are extending the right to withhold shares in respect of ex-employees so that recovery may be made when the gains on the shares arise in the year after they ceased work, as well as the year of cessation. We will allow employers and employees to make those agreements whether or not the normal cash earnings are sufficient to meet the primary contributions due on the share-based earnings. 
 The clause therefore allows much greater flexibility for both the employer and the employee. They will be able to agree on the most mutually convenient method to recover primary contributions. We want employers and employees to be able to choose the form of recovery that suits them best, whether cash earnings are available or not for the deduction of the primary contributions. Those changes will be made by amending both primary and secondary legislation. The clause sets out the primary powers. I hope that I have made it clear to the Committee that we will be making the draft regulations available so that the Committee can study them and see how the provisions will work in detail. 
 I am happy to commend the clause to the Committee.

Mark Prisk: I welcome you to the Chair, Sir John. This is the first time that I have been under your chairmanship, so I shall look forward to receiving your guidance as we proceed.
 I welcome the Paymaster General's opening remarks. Clause 1—and, I think, clause 2—will, as she intimated, extend the ability of employers to recover contributions in two instances, depending on whether an employee is a current or former employee. The Government tell us that the aim of this measure is to militate against the impact of the additional 1 per cent. national insurance charge on employee's earnings over the upper limit. We had a thorough exposition of that point on Second Reading and I do not intend to pursue it further. 
 I welcome the Paymaster General's remarks on the secondary legislation, although it is disappointing and to be regretted that we have not had a chance to get into the details. I am sure that Labour Members feel cheated of that opportunity, but will nevertheless be keen to read the legislation as the day progresses and to make their contributions. On a more serious note—I am sure that other Members in the Committee share this view—our job of scrutinising the legislation is extremely important. That is, after all, why we are here. 
 To ensure that this is an informed debate, I hope that the Minister will clarify the scope and application of the regulations. Who is and is not affected? Will the Minister also clarify the cost implications? We have not seen any regulatory assessment in the draft 
 regulations yet, but anything that we should be aware of that is material to the original legislation would be helpful. In addition, will the Paymaster General say what outside input and consultation, informal or otherwise, has helped in drafting the secondary legislation? 
 Subsection (3) states: 
 ''Sub-paragraph (3B) applies where a person (''the employee'') who is employed by a particular employer (''the employer'') receives earnings in a form other than money (''non-monetary earnings'') from the employer in a tax year.'' 
Non-monetary earnings is a very wide definition and goes beyond what I understand to be the purpose of the clause, namely to deal with securities-based earnings. Non-monetary earnings might come in the form of a wide range of benefits that employees receive, such as vouchers and other kinds of help. My understanding is that ''securities-based earnings'' has a recognised definition, which was established in the most recent Finance Bill. Does the wider definition in subsection (3) therefore anticipate the need to apply the legislation to other forms of non-monetary benefit or remuneration? If so, in what circumstances would it apply? Will the Paymaster General confirm what the limit of the definition is, for the sake of clarity among those to whom it applies? For example, would the definition include payment of dividends to the owner-manager of an enterprise, incorporated or otherwise, or their spouse? 
 Subsection (4) refers to ex-employees, the definition of which is someone whose employment has ceased. However, will the Paymaster General say whether that includes those whose contracts may have ceased, but who have been retained to provide advice or other work in a consultancy capacity? I am sure that she and other hon. Members are familiar with the distinction between worker and employee from previous debates. An important element still needs to be drawn out, and I hope that the right hon. Lady will clarify the matter. 
 The clause's critical concept can be found both in the remarks that the Paymaster General just made and in paragraph 49 of the explanatory notes, which says: 
 ''It is intended that regulations will allow the employer, with the written consent of the employee, to recover the primary Class 1 contributions''. 
The key phrase is ''written consent'', which is at the heart of the clause, whether it applies to current or former employees. Written consent is an entirely logical mechanism and is frequently used in other statutory situations—wearing my chartered surveyor hat, I immediately think of the role of the written consent between landlord and tenant where a lease renewal is to be considered. In that and many other statutory situations, the principle of written consent is allied to the argument that it should never be unreasonably withheld. However, I do not see that condition established in the clause. Will the Paymaster General say what will happen if written consent is withheld? What would employers do? What would their redress be in such circumstances should the Bill be enacted as it is? The Committee will have noted from the Paymaster General's remarks that the time 
 limit within which, with an ex-employee, an employer can secure that consent is within the year of cessation or the year after. However, let us imagine that an ex-employee has moved to Hong Kong or Tokyo, perhaps in financial services, and that the original agreement did not include express written consent for that change. Perhaps the Paymaster General can enlighten us about what would happen in those circumstances. 
 Without any specific comment on the secondary legislation at this stage, I would say that the principles underlying the clause are welcome, but I hope that the Paymaster General will be able to clarify the points that I have raised.

Norman Lamb: I, too, welcome you to the Chair, Sir John. I join the hon. Member for Hertford and Stortford in asking the Paymaster General to summarise the effect of the draft regulations that have been handed to us this morning. The explanatory notes include several references to what will be provided for in regulations in relation to clause 1. Do the draft regulations that have been prepared accurately reflect that?
 My second point is about non-monetary earnings. I want to understand whether that term is defined anywhere. The Paymaster General is nodding, and I shall be interested to hear her full answer. I do not think that I need to develop the point, as she seems to be giving confirmation. 
 As I understand matters, existing regulations for the current more limited arrangements already provide protection to ensure that employees are not exploited by employers. I should be grateful if the Paymaster General could summarise that protection and explain how she has ensured that it remains, given that we are widening the scope for agreements between employers and employees.

Dawn Primarolo: I should perhaps make clear the difference between clauses 1 and 3. I should like to return to the question of election and the protection of the employee under clause 3. Clause 1 deals with the employer's ability to recoup the employee's class 1 national insurance liability. The election arises under clause 3, which deals with payment of employers' class 1 liability. In relation to clause 1, procedures have been established for some time.
 On the point about non-money earnings, agreements can be made on all earnings classified as security-based earnings by section 420 of the Income Tax (Earnings and Pensions) Act 2003, as amended by schedule 22 to the Finance Act 2003, as hon. Members will remember. Schedule 22, as those who served on the Finance Bill Committee last year will remember, was the rewriting of all the share-based and share ownership schemes, in recognition by the Inland Revenue of certain schemes. 
 The majority of security-based earnings are paid in the form of shares. However, the legislation providing for income tax and national insurance treatment of earnings paid in the form of shares also applies to earnings paid in the following types of securities: debentures, debenture stock, loan stock, bonds, 
 certificates of deposits, warrants entitling holders to subscribe the securities, units in a collective investment scheme, futures, rights under contracts for differences, or similar contracts. 
 As I tried to explain on Second Reading, the lead comes from the 2003 Act, as cross-referenced with the Finance Bill and tax legislation. As we discussed when considering the Finance Act 2003, this is a complicated area, in terms of the different types of remuneration that employers are providing to their employees in this category. That is the anchor. The Bill brings together our treatment of tax and national insurance, and deals particularly with employers' liability to national insurance. 
 Perhaps it would help if I gave an example of the changes that clause 1 will make and explain how they would help employees. In order to demonstrate that the matter pertains regardless of the 1 per cent., I have chosen an employee who earns less than the upper earnings limit for my example. [Interruption.] When the hon. Member for North Norfolk hears the example, he will see why. 
 One issue of share-based ownership is that, in order to be recognised it must be available to all employees in a company. Let us consider an employee who receives monthly cash-based earnings of £800, from which the employer deducts £45.65 in primary national insurance. One month, the employee receives a share-based earnings bonus payment of £15,000, on which primary national insurance of £327.90 is payable—the majority of which, £195.69, arises on the earnings below the upper earnings limit. As those earnings are not cash payments, the employer has nothing to deduct from in order to fund the contributions to the Inland Revenue that it must make on the employee's behalf. Currently, the employer would not be able to agree with the employee to withhold or sell shares equal to the £327.90 national insurance that it paid on the employee's behalf, as the employee is not ceasing to be employed. The only form of recovery open to the employer would be to recover the national insurance from the employee's future earnings. The employer could take that in one go, or a portion could be deducted each month, but if the employer deducted all the national insurance in one go, the employee would lose a significant part of his monthly salary and might suffer economic hardship. 
 With such a dynamic, employers may feel unable to award shares because of the problems that it might cause their employees, who might suffer even if employers deducted only a proportion each month, as those deductions, on top of the normal national insurance payments, could significantly reduce employees' incomes.

Norman Lamb: The example seems to demonstrate why the main purpose probably does relate to the 1 per cent., because it is such an extraordinarily unlikely scenario that someone earning £900 a month would suddenly receive £15,000 in shares and would suffer economic hardship from a deduction from the next month's pay, given that they had just received a bung of £15,000.

Dawn Primarolo: If the hon. Gentleman cared to study the arrangements made in the provision of shares to employees, he would see that I have not chosen an unreasonable example. In any field, people are careful and are resistant to any reduction in their expected income per month, however small that reduction may be, unless they are given good cause and accept the provisions.
 It will be in both parties' interests to enter into an agreement with the employer to retain an amount of shares equal to the national insurance liability of the £327.90. The employee will be able to repay the employer when he has the money to do so. The example demonstrates that cash can still be deducted in one month, but that there is another way of ensuring that an employer's desire to provide shares and an employee's desire to receive them are not impeded by the operation of the national insurance system. The liabilities of employer and employee can, however, still be made according to the principles of the national insurance system.

Mark Prisk: I am sure that that fascinating example will enlighten the Committee. The Paymaster General's list defines the earnings meant by the clause and the Bill, and is helpful. It may be because it is early in the morning, but I am still unclear about what ''non-monetary earnings'' means. Does it include non-securities-related earnings?

Dawn Primarolo: The term relates to the sections of the securities and pensions legislation that I referred to and to schedule 22 of the Finance Act. It clearly sets out what would and would not be included.
 The hon. Gentleman asked a series of slightly less detailed questions, the first of which was whether we had consulted on the secondary legislation. That is still in draft, rather than final, form because if other points arise during consultation, it may be necessary to make technical changes to the regulations so that they accurately amend all necessary legislation to give reality to the points that we are discussing this morning, which is exactly the point made by the hon. Gentleman and the hon. Member for North Norfolk. 
 The hon. Member for Hertford and Stortford also asked about employment status. He has told the House before that he was once self-employed, so I am sure that he is aware that in this case ''tax'' follows the normal meaning of the word. According to employment law, if an employee's contract ceases and they then work in a different capacity with the same employer, that employer no longer employs them, so they can be an ex-employee. That, however, absolutely depends on the facts of the employment relationship, as it always does. 
 The hon. Gentleman also asked what would happen if written consent was not agreed. If an employer was left with a liability that they could not recoup from their employee—the employer is liable to pay it—presumably the employer would have to reflect on whether they wanted or felt able to make the shares available if they believed that the liability they retained was too great. Indeed, in discussions held since 1998, 
 employers have continually told the Government about the need to resolve this issue, because they believe that achieving the liability impedes their ability to make shares available for all employees. 
 The hon. Gentleman's final question related to owner-managers or spouses. I told him that the legislation dictating the grounds that the Inland Revenue will recognise for tax and now national insurance clearly sets out the employer's payment of shares to the employee to give him or her a stake in the company, and the necessary relationships between the employee and the employer.

Mark Prisk: On the Paymaster General's latter point, there are obviously many instances in which a spouse can be an employee of an owner-managed business, so I am not entirely sure that she clarified that issue, and she may want to return to it.
 On the point about ex-employees, there is often a significant dispute between an employer and an ex-employee, which is where the awkwardness may arise. Let us say that someone is an ex-employee who left under a cloud, and a legal dispute is in train. It could be in Aberystwyth, for all one knows, but let us say that it is in another legal jurisdiction such as Tokyo. I am trying to establish whether there is a mechanism by which that written consent can be secured. I heard what the Paymaster General said, which is that the employer may have retained certain shares in some instances, and will therefore have some leverage, but that will not be the case in other instances. Is it envisaged in the Bill what would happen in those circumstances?

Dawn Primarolo: The operation of the scheme in its limited form provides for the relationship whereby an employer recovers from an employee. In the case of a dispute between the employer and the employee, it would be a contractual dispute between the employer and the employee; that is not the relationship with the tax authorities. I have not been given any examples of such a scenario, nor have companies asked us in their representations to try to provide for such a scenario. I cannot, therefore, answer the hon. Gentleman's question in detail, because his point is theoretical, the matter never having been raised with us. Such a scenario would be part of the usual relationships between an employer and an employee, and it would not be a matter for us. It becomes a matter for us in clause 3, which relates to the acceptance and transfer of liability.

Mark Prisk: That is very helpful. After all, the critical part of our process is to try to tease out and identify circumstances. I fully accept that legislation cannot provide for every possible circumstance. However, I am concerned not about the employee, but about the ex-employee: someone who has left, perhaps in a serious dispute with their former employer. An extreme example is Nick Leeson. The issue that I have raised would be quite awkward for the employer in a ''Nick Leeson'' situation. The Government may have decided that that is not crucial and that no
 representations have been made, in which case we can at least put that on the record. I simply want to establish the position.

Dawn Primarolo: Where an employer had withheld a proportion of the shares to cover liability, the only dispute that could arise would presumably be the employee saying, ''I want those shares back,'' or, ''That was not a fair representation of the liability.'' As the liability for national insurance can be easily calculated, and given the tables published on the values, the employee should be in full knowledge, so I do not really understand the point of the hon. Gentleman's question.
 The clause provides a protection for the employer to ensure that their liability is covered. They do not have to take it all in one go and perhaps thereby cause a cash-flow problem for the employee, but equally they are not faced with having to cover the cost in instalments over a number of months, perhaps when the employee is no longer working for the company. The share option of retaining for the value covers the hon. Gentleman's point, so it is difficult to see where other disputes could arise. However creative in tax planning the financial industry is, we shall of course keep an eye on the situation. 
 Question put and agreed to. 
 Clause 1 ordered to stand part of the Bill.

Clause 2 - Payment of Class 1 contributions: Northern Ireland

Question proposed, That the clause stand part of the Bill.

Mark Prisk: I do not intend to detain the Committee, other than to say that the clause appears to be a mirror image of clause 1, so we have already teased out the issues.
 Clause 2 ordered to stand part of the Bill.

Clause 3 - Agreements and joint elections: Great Britain

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: The purpose of the clause is to extend the opportunity for employers to ask their employees to bear the employer's national insurance liability that may arise some time after an award of restricted or convertible shares, but which cannot be quantified when those shares are awarded. The clause does not introduce anything new; rather it extends the use of a facility that has been used by employers and employees with respect to earnings from share options since its introduction in 2000. The facility to allow employers and employees to agree to transfer the employer's national insurance liability arising from share option gains has been widely welcomed and successfully used by many employers. More than 1,800
 employers have applied to the Inland Revenue for approval to use that transfer facility for employees receiving share options.
 The Government keenly support the measures that encourage employee share ownership. Research shows that there is a link to improved productivity. The Government also provide significant income tax and national insurance reliefs when businesses award shares to their employees through one of several Inland Revenue-approved schemes. Such reliefs amount to more than £1 billion a year and affect about 2.5 million employees. Employers do not have to limit themselves to such tax and national insurance advantage schemes. However, any awards to employees that are outside the limits and rules of such approved share schemes will, like any other form of earnings from employment, attract income tax and national insurance liabilities. 
 Perhaps it would be helpful if I briefly explained the history to the relevant facility. In 1999, the Government aligned the national insurance treatment of share options with income tax treatment, so that both income tax and national insurance liabilities arise when the employee exercises the option and acquires shares. However, for some employers that led to accounting difficulties. Following consultation with those affected businesses, the Government introduced a technical solution to allow employers, with the consent of their employees, to transfer any employer's national insurance liability that arose on share options earnings to the employee receiving those earnings. 
 In 2001, the Government again demonstrated that they had been listening to the concerns of the business community by introducing legislation to give employers the opportunity to crystallise their employer's national insurance liability to share options granted between 6 April 1999 and 19 May 2000. That was done to meet the needs of employers who faced unpredictable national insurance liabilities on the exercise of share options, but who were unable to take advantage of the facility to transfer the employer's national insurance liability to the employee. 
 In continuing discussions with employers, we have become aware of the increasing attractiveness of restricted and convertible shares as a form of incentive that employers could use to motivate and reward their employees. However, employers and their representatives have said that problems in accounting for the employer's national insurance contributions on share-based earnings are not limited to share options. Employers also face difficulties in accounting for the employer's national insurance liability that may arise as a result of certain events following the award of restricted and convertible shares. 
 Those difficulties arise because the national insurance charge may be triggered by certain events that occur after the shares are acquired by the employee. Such events are commonly referred to as post-acquisition chargeable events, and they include the lifting of restrictions applying to the shares or the conversion of shares to another more valuable form of 
 shares. Because of the time gap between the award of the shares and the post-acquisition chargeable event, and the unpredictability of changes in the share value during that period, the consequent size of the national insurance liability arising on post-acquisition events is also unpredictable. 
 Clause 3 provides a technical solution for employers who face unpredictable national insurance liabilities on awards of restricted or convertible shares. The solution is similar to that currently available for share options granted to employees; as I have said, more than 1,800 employers have already made applications to take advantage of that facility. By extending the facility to transfer employers' national insurance liability to post-acquisition earnings from restricted and convertible share awards, the measure will give employers greater flexibility in choosing how to use shares to motivate and reward their employees. 
 I shall be happy to respond to questions from the hon. Member for Hertford and Stortford, but I must again make it absolutely clear that the clause is intended to provide options to allow employers to continue to provide—or, in some instances, to begin to provide—share options to their employees, ensuring that they are protected with regard to the unpredictable national insurance liabilities that may subsequently arise.

Mark Prisk: I welcome the Paymaster General's opening remarks. As she said, the clause widens the scope of joint national insurance elections and agreements to deal with convertible and restricted securities. The right hon. Lady highlighted the fact that the benefit of the provision to the employer is that it removes the risk of unpredictable and unanticipated post-acquisition secondary liabilities for national insurance. In some cases, such liabilities can be significant. They may therefore have an impact not only on the employer's profitability, but just as significantly—in some cases, more so—on their cash flow. Those Committee members who have been in business understand that cash flow is often more important than profitability.
 As clause 3 is intended to remove barriers to widening share ownership, Conservative Members warmly welcome it, although, as I suspect the Paymaster General will have anticipated, I have a couple of questions about the practicalities and the costs of the clause and the contents of the supporting documentation. I refer in particular to the regulatory impact assessment, which relates, first, to the cost of agreements. Page 5 states: 
 ''Any costs will primarily be associated with drafting a suitable agreement, asking employees to enter into these agreements and ensuring the secondary NICs are recovered from the employee correctly.''
 That is fine. The assessment continues: 
 ''However, most employers are likely to incorporate suitable wording into their existing share scheme documents and any cost will become part of the overall cost of setting-up and operating employee share schemes.'' 
On the face of it, that is fine, but it would be helpful if the Paymaster General could tell us what estimate the Treasury has made of the costs for employers. That is 
 not elaborated in the assessment, and it is difficult for us to understand the scope, and therefore the implications, of the cost of the agreements. 
 There is a slight contrast between that matter and the joint elections, on which the assessment is slightly clearer. However, there are still some unclear statements. The next paragraph on page 5 states: 
 ''An employer may incur initial costs for seeking professional advice on preparing a form of election and obtaining Inland Revenue approval and it is estimated this service may cost around £3,000.'' 
What is the basis of that calculation? In particular, is that per application or per employee? That makes a quite significant difference to a large employer. The assessment goes on to state that the Revenue 
''will provide a model form of election'', 
and that is welcome. However, it then makes a rather unsupported assertion: 
 ''Additionally, the benefits of a joint election to the employer will outweigh this initial one-off cost.'' 
That is fine, but perhaps the Paymaster General could explain how that will happen. The assertion seems to be made without any evidence behind it. The Paymaster General will know that I like to make sure that I am clear about the evidence for that kind of assertion. 
 Can the Paymaster General confirm, pursuant to what I have explained, that the impact on businesses is approximately £1.5 million, on the basis of the figures given: the stated 500 applications and a figure of £3,000 per service. However, perhaps I am misreading things. 
 On the question of joint elections, I suspect that the error is unintentional, but there is a reference in the relevant paragraph to secondary national insurance contributions being paid by the employee. Of course, employees pay only primary national insurance contributions. I did not quite understand that sentence; I hope that it is just a typographical error. 
 I want to refer to two aspects of the matter that shape clause 3. Clause 3(2)(b) would insert a new sub-paragraph (2A) into paragraph 3A of schedule 1 to the Social Security Contributions and Benefits Act 1992: that new sub-paragraph includes the term ''artificially depressed market value''. Had this sitting commenced at five minutes to 9, most of us would have been suffering from an artificially depressed market value. However, will the Paymaster General define the term and how the provision will be enforced? Clearly, the market value of the securities will be critical to the whole clause, or indeed the Bill. A definition to show when something has been artificially depressed and when it has not will be helpful. I am sure that it is in the legislation that has been mentioned, but as I am sure the Paymaster General will appreciate, many elements of legislation are affected or amended by the Bill. 
 By contrast to the term ''artificially depressed market value'', the phrase ''relevant employment income'' is somewhat over-generously defined in the new sub-paragraph (2B) set out in clause 3(2)(b). 
 Rather than having no definition, we appear to have three. We are told that it means, in relation to the earner, 
''an amount that counts as employment income of the earner under section 426 of ITEPA 2003'', 
 ''an amount that counts as employment income of the earner under section 438 of that Act'' 
or that it is 
''a gain that is treated as remuneration derived form the earner's employment by virtue of section 4(4)(a) above.'' 
I assume, although one should not make assumptions about a Bill, that there should be an ''or'' between (a) and (b); otherwise there is potential for the clause to be misread. No doubt it is an oversight, but I hope that the Paymaster General will clarify it.

Norman Lamb: We, too, welcome the intention behind the clause. There is clearly a case to be made that the existing arrangements act as a disincentive to employers to offer to employees such remuneration as restricted or convertible securities. Can the Paymaster General indicate what estimate her Department has made of the impact of the extension of the rules to cover restricted and convertible securities? What will be the extent of their use, in the Treasury's estimation?
 Secondly, the regulatory impact assessment states that a model form of election will be provided on the Inland Revenue website. Can the right hon. Lady confirm that that will be the case, and that it will be there before the rules come into force? We often hear about things not being available when they are needed. The hon. Member for Hertford and Stortford asked for clarification of what is covered by the term 
''securities with artificially depressed market value'', 
and I shall be equally interested in the Paymaster General's response. 
 The regulatory impact assessment also refers to the fact that the effect would be a £15 million transfer from employees to employers by virtue of the employees taking up the burden of paying the secondary contributions. I shall be interested to know how that assessment was made. What is the science behind it and how robust is it? Equally, on the same issue, the regulatory impact assessment identifies, in terms of risks of the legislation, the fact that security-based remuneration may not provide a sufficient incentive for employees if the total income tax and national insurance contributions burden that they face is increased to include secondary national insurance liability. The assessment rates that risk as low. I should be grateful if the Paymaster General could justify that. I believe that it is likely to be the case, but why is it assumed that it will not put employees off going for such remuneration? 
 There is also stated to be a risk of employees defaulting on obligations to pay secondary national insurance contributions. How does the Treasury assess that risk as low? The Inland Revenue would lose out because it would not be able to recover them from the employer. There could be circumstances in which an employee moved out of its jurisdiction—the hon. Member for Hertford and Stortford has referred several times to employees moving abroad—so, 
 although that person was liable to pay the secondary contribution because of the agreement or election, the Inland Revenue would have lost the opportunity to recover it from him or her and would not be entitled to recover it from the employer. Is the risk really as low as the assessment claims? 
 Finally, the regulatory impact assessment says, at page 16, that the Treasury has 
''set up compliance mechanisms to ensure the employer has a vested interest in the employee meeting the liabilities''. 
It then says that the employer will not be able to make joint elections again if the employee defaults. Is that the compliance mechanism? Is it as simple as that: if there is a default, is the employer prevented from ever entering a joint election again, or do other aspects of the compliance mechanism impose an incentive on the employer to ensure that the employee meets the obligations in place of the employer?

Dawn Primarolo: I congratulate the hon. Member for Hertford and Stortford on spotting two typos. He was quite right when he referred to the ''or'' at the end of new paragraph (2B)(b) in clause 3(2)(b). The ''or'' is unnecessary. As for his reference to the regulatory impact assessment, the clause transfers the employer's secondary national insurance contributions to the employee. It is gratifying to see how carefully he scrutinises every piece of work.
 It might help to answer first the questions from the hon. Members for Hertford and Stortford and for North Norfolk about the election. The Inland Revenue will want to ensure that, as regards what the employer has done, the employee understands their liabilities as contained in the joint election. In order for the joint election to transfer secondary contributions from the employer to the employee and for that to be approved by the Inland Revenue, it must contain statements that clearly inform the employee of the purpose and effect of the election and how it will be put into practice when a particular chargeable event occurs. The election must also include a declaration by both the employer and the employee that they will be bound by the terms of the election. 
 Schedule 5 of the Social Security (Contributions) Regulations 2001 provides that the approved election must contain the following statements. It must specify that it is for transferring the employer's national insurance liability on share options granted to the employee, and it must specify the details of the options to be covered by the election and that the election has to be limited to share options. A statement and explanation of the effect of the legislation at section 4(4)(a) of the Social Security Contributions and Benefits Act 1992 is required, which ensures that the employee is asked to pay only the secondary national insurance liability that arises on gains from share options granted to him or her. It must state the amount or proportion of the employer's contribution that the employee will bear, including an acknowledgement that the liability was originally that of the employer and that the employee will now pay it.

Norman Lamb: I am conscious from my former life as an employment lawyer that, under the legislative arrangements for compromise agreement, when employees leave employment and sign away their legal rights, they have to have independent legal advice in order for the agreement to be effective. In the situation before us, we have a scenario in which the employee is asked to take over what is potentially a substantial financial burden from the employer. I understand from what the Paymaster General is saying that the agreement, or election, has to set out clearly the implications so far as the employee is concerned. However, we are all aware that employees as individuals often sign up to things without reading the small print. What protection is there to ensure that employees actually understand the information, rather than its simply being in a document that they have signed? They should understand the implications of what they are signing.

Dawn Primarolo: It is important to remind the Committee of the Bill's purpose. Where an employer gives an employee a substantial advantage by transferring shares of a value, it is subject to normal national insurance and tax, if that is outside the approved schemes, and the employee stands to make substantial gains, and the reason why the employer wishes to transfer the shares is based on the clear advantages in companies where employees are—

Norman Lamb: Will the Paymaster General give way?

Dawn Primarolo: Just a minute. I am coming to the hon. Gentleman's point.
 We are not talking about the Government forcing or regulating contractual relationships between employees and employers. We seek to do that which the hon. Gentleman impressed on the Government that it was important to do: ensure that the tax and national insurance systems should not impede any desirable relationship between employers and employees. Both employees and employers need to be clear about what they are signing up to with the transfer of liability. 
 In answering the hon. Gentleman's question, I will explain what the Inland Revenue will look for when it tries to ascertain that an agreement is valid and that it has a document that legally transfers the liability for the insurance, thereby changing whom it pursues for that liability. If employers wish to do that, because they see all the advantages of share ownership, it will be for them to make sure that they have proper agreements that will satisfy the Inland Revenue, as it will be for employees to ensure that they understand the full extent of their responsibilities before they take them up. 
 I will make my final points about what employers must do before looking at the issue of coercing employees, and what we have tried to do with that. Even though such issues are, strictly speaking, contractual matters between employees and employers, it may help.

Norman Lamb: I appreciate the Paymaster General going through this in detail. The benefit may not be as substantial as the right hon. Lady described in her response to my intervention. Employees may be persuaded to take share options or other forms of securities in lieu of an increase in wages, so there could be all sorts of situations in which employees are under pressure. I want to ensure that the wording of what employees sign is sufficiently clear and that it is presented sufficiently clearly for them to understand what they are signing—a full acceptance that they are receiving a benefit that may be in lieu of some other benefits that they thought that they were going to get.

Dawn Primarolo: I shall return to that point with regard to employees. First, I give way to the hon. Member for Hertford and Stortford.

Mark Prisk: That was a useful exchange, although it may be tangential to the essence of the clause. I was, however, slightly concerned that the Paymaster General seemed to be implying that share options can only be more beneficial than cash. She might want to append her remarks, because she will know, as we all do, that the value of shares can go down as well as up. I just want to give her the opportunity to say that.

Rob Marris: Do not exercise the option.

Dawn Primarolo: Precisely so, although I agree with the hon. Member for Hertford and Stortford. Neither the Government, nor I as a Minister, nor the Contributions Agency, are trying to place ourselves between an employee and an employer by deciding where their best advantage lies. I am simply responding to the point made to us that the workings of national insurance impede that clear understanding.
 Within the limited scope of national insurance, the Bill's aim is to remove those perceived barriers and to leave the employee and the employer to settle important and possibly complex issues. It would be the nanny state to the nth degree if we were to go down the route that the hon. Members for North Norfolk and for Hertford and Stortford seem inadvertently to be trying to encourage me to go down, which is almost to the point of giving financial advice to employees about whether they would be wise to take share options. We are not doing that. It is for the employee to decide. 
 We have accepted that liability can be transferred from employer to employee. Given that, and taking into account the current principle of national insurance, if in this exceptional circumstance the Inland Revenue has all the information that it needs to see that the arrangements are being properly used, we must ensure that it can pursue someone for some or all of the liability according to a clear point in law, and that there are necessary safeguards, as we would expect in any provision, that do not substitute themselves for an employee deciding, rightly or wrongly, whether to take up a share option when it is offered. 
 As I said, the agreements must specify whether the employer pays all or part of the national insurance liability. The employer is also required to explain the process by which he will recover the transfer of 
 national insurance liability so that the employee is aware of what will happen when the gain from the share option occurs. That will ensure that both parties to the election are aware that the election comes to an end once its terms have been satisfied, or once it is agreed that it should no longer apply. 
 The hon. Member for Hertford and Stortford asked me about the £3,000 per application and the costs to employers. I confirm that the Inland Revenue will submit a draft agreement by the time the legislation becomes operational. Our experience, however, seems to indicate that employers will take their own legal advice and draft their own agreements. The Inland Revenue will need to be satisfied that those agreements, within the very brief outline that I set out, are within the legislation. Again, employers will decide whether or not they want to carry that cost, as it will be part of their decision whether or not to offer share options. They will also decide whether or not the unpredictable gain, should there be one, is greater and therefore whether it is more sensible for them to move to these arrangements. 
 We need briefly to touch on how the Inland Revenue will try to ensure that the employer will explain to the employee what joint election is and what its purpose is. It must be approved by the Inland Revenue and must contain statements that clearly inform the employee of the purpose and effect of the election, and how it will be put into practice when a chargeable event occurs. Schedule 5 of the Social Security (Contributions) Regulations 2001 provides that an approved election must specify that it is transferring the employer's national insurance liability on share options granted to the employee. The election must be limited to share options and must ensure that employees are being asked only to pay the secondary national insurance liability that arises on gains from share options granted to them. The election must specify whether the employee will pay the whole or part. The employer is required to explain to the employee the process by which he or she will recover the transferred national insurance liability. 
 What happens where there is an allegation of coercion? Although it is difficult to envisage the circumstances, if a dispute were to arise because an employee felt that they had not freely entered into the joint election, the Inland Revenue has powers to withdraw approval of the continued use of that election. It would then be up to the employee to make the case to the Inland Revenue. However, given what must be in the agreement—the employee should have read it and the unpredictability of the gain should have been explained to them—they will need to demonstrate clearly how they signed a piece of paper that said that they understood, when in fact they did not.

Norman Lamb: It seems as if the Inland Revenue has properly addressed the issue of coercion with regard to share options, and I am interested to hear that it can withdraw its consent if there is evidence of coercion. Is any information available on whether those powers
 have been used with regard to share options? Is there any evidence of employees complaining of employers improperly coercing them into agreeing to such elections?

Dawn Primarolo: No, there is not, but it may be a question of waiting until the gain is realised and the option arises. As I have stressed, liabilities have for some time been an important issue in discussions between employers and employees. To date, the Inland Revenue has been placed under pressure to extend the list of approved schemes to make things even easier, although there is a substantial cost to the taxpayer. That is not to say that the scheme was not working in a suitable fashion.
 We shall keep an eye on the situation, although people are of course not slow to come to the Inland Revenue to offer advice, guidance and suggestions on how to change or develop the scheme. The Inland Revenue has done its level best—it has done well—to strike a balance between holding on to those important principles that operate for the national insurance system as a whole while yet removing in a reasonable way those difficulties that impede the development of another policy, which is widely encouraged by the House and is to the good of employers and employees. 
 The term ''artificially depressed market value'' is defined in chapter 3A of part 7 of the Income Tax (Earnings and Pensions) Act 2003, as amended by schedule 22 of the Finance Act 2003. I am sure that the hon. Gentleman will remember from our discussions on the 2003 Finance Bill that the creativity of some in the tax planning industry in using even a generous provision to squeeze more out of the system than was intended by Parliament seems to be without limit. It is not simply that share schemes or the transfer of other assets are used as a substitute for earnings in order to get around national insurance or PAYE requirements. 
 The term is firmly anchored in the operation of the tax system, and it will not be unknown to those who advise on share options or any other form of tax planning to companies or individuals. It is intended to ensure that employers and employees cannot avoid their full tax and national insurance liability by paying earnings in shares, the value of which has been deliberately manipulated to reduce that liability.

Mark Prisk: I am not necessarily after a specific definition; I am aware of it, although I do not retain it at the forefront of my mind. Nevertheless, I am grateful to the Paymaster General for refreshing my memory. I wish to make a broader point.
 It would be useful if such definitions were to be included in the explanatory notes. Being told that an explanation can be found in this or that Act does not always help. I do not ask for a definition of every phrase or word, although I am sure that the right hon. Lady and the Committee will understand that it can be quite helpful, particularly for hon. Members who come fresh to the subject. Rather, I wonder whether such a commitment could be made for future legislation.

Dawn Primarolo: I certainly take the point. That could be said of just about everything that crosses my desk, whether it be an emergency announcement, the closing of an avoidance scheme or draft legislation. It is a sad fact of everyday life that tax legislation needs anti-avoidance provisions, because the ability to manipulate value in order to reduce liability is widely exercised.
 The phrase is a longer description of the intent of Parliament. Anyone reading the Bill can clearly see that we mean the value of the shares at the point of transfer, but a better definition is needed. Nevertheless, I am happy to consider the hon. Gentleman's suggestion. 
 The hon. Member for Hertford and Stortford said that page 5 of the regulatory impact assessment shows that we expect about 500 applications a year for new joint elections. That is based on previous national insurance elections; we are not able to do more at the moment. We have been told by employers that there is a restriction in the barrier.

Norman Lamb: I also raised the issue of compliance mechanisms. The regulatory impact assessment refers to the fact that compliance mechanisms have been set up to ensure that the employer has a vested interest in the employee's meeting the liability. It then says that the employer would not be able to make another joint election. Is that the compliance mechanism, or is it broader than that? I want to understand any difference.

Dawn Primarolo: I am sorry; I thought that I had dealt with that. The mechanism is broader than that. I was trying to demonstrate that that is one possibility, in that the text of the election must set out the arrangements for recovery from the employee. The Inland Revenue must be satisfied that those arrangements are robust and will work. They are the employer's responsibility. If they do not work, the Revenue's recourse is to the employer. For those operating substantial schemes, having their election suspended would be counter not only to their up-front investment in providing for the smooth operation of the scheme, as has been pointed out, but to their realising all the benefits that they would like. The crucial point is that the election itself must clearly lay out how the recovery arrangements will work, and the Inland Revenue must be satisfied that they will work in all circumstances.
 The debate has been very helpful and detailed. I hope that I have dealt with all the points from both hon. Gentlemen. 
 Question put and agreed to. 
 Clause 3 ordered to stand part of the Bill.

Clause 4 - Agreements and joint elections: Northern Ireland

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Clause 4 mirrors clause 3, but for Northern Ireland. I hope that I have covered all the major points, which will apply equally to Northern Ireland.
 Question put and agreed to. 
 Clause 4 ordered to stand part of the Bill.

Clause 5 - Recovery of contributions, etc: Great Britain

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Clause 5 aligns the periods of notice required for distraint action to recover national insurance contribution debt in England and Wales, and the application for summary warrant in Scotland, with those that apply for tax debt.
 In this part of the Bill, we turn to measures concerning the recovery of NICs debt. Clause 5, and clause 6 for Northern Ireland, deal with the small minority—3 per cent.—of NICs that are not collected with tax. They are mainly the flat-rate class 2 contributions that are paid by the self-employed. The purpose of the clause is to align the Inland Revenue's procedures for recovering that type of NIC debt with those for recovering tax debts. Tax legislation and procedures have applied to debt recovery contributions collected with tax since the mid 1970s. 
 Perhaps I should briefly explain why we need the changes. First, given that all tax and contributions debts are recoverable by the Inland Revenue, there is no logic in having separate rules for a small proportion of cases. Secondly, situations can and do arise in which a person has both a tax debt and a class 2 contribution debt. As the legislation stands, it is not practicable to deal with both debts in a single action. 
 The current provisions were inherited from the Contributions Agency in 1999. Although the Social Security Contributions (Transfer of Functions, etc.) Act 1999 gave the Inland Revenue responsibility for recovering such debt, it did not change the legislative mechanism for the recovery action. 
 The changes are relatively straightforward. The period of notice for distraint action in England and Wales is changed from 30 days to seven, in line with the procedures for recovering tax debt and accepted good practice. The period of notice for application for a summary warrant in Scotland is changed from 30 days to 14, in line with the tax legislation and the procedures under the Debt Arrangement and Attachment (Scotland) Act 2002. The 30-day notice periods prescribed are out of line with tax procedure and legislation, and with best practice on the recovery of general debt. 
 Distraint action involves the seizure of goods for sale at auction if the debt is not settled. Where a debtor is determined, for whatever reason, not to pay, a 30-day notice of the action provides a more than ample opportunity to dispose of valuable goods that might otherwise be seized. 
 The clause makes two changes. It clarifies the legislation regarding the recovery of amounts due under personal liability notices and it provides for the alignment of the tax and contributions debt recovery provisions by regulations. Personal liability notices can be issued in respect of unpaid national insurance contributions to the former directors of companies that have been wound up. For the avoidance of doubt, the clause specifies that debts arising from personal liability notices are to be recovered in the same manner as the class 1 contributions to which the notices relate. 
 The final provision in the clause is a regulation-making power to allow tax legislation to apply to the recovery of such contributions. An equivalent power has existed since the mid-1970s for contributions collected with tax. This is a future-proofing provision designed to prevent misalignment from arising. It is necessary because most national insurance matters are outside the scope of the Finance Bill. Thus, if a future Finance Bill were to change the provisions governing the recovery of tax debt that needed to be mirrored in such contributions, separate provision would have to be made in a programme Bill. That would inevitably be delayed, as space in any Government's legislative programme is scarce. 
 I am happy to answer questions from members of the Committee, but I hope that they accept that it is sensible for employers to have one procedure, with which they are familiar, for the recovery of debt across all tax debts. The provision brings national insurance debt in line with tax debt, making a single, recoverable action. I hope that the Committee accepts the clause.

Mark Prisk: I welcome the Paymaster General's opening remarks on the clause and on clause 6, which, as she said, in so many ways mirrors it.
 The clauses relate to the outstanding differences in certain rules between tax collection and the recovery of national insurance and, in particular, to class 2 contributions, which are particularly pertinent—indeed, pertinent only—to the self-employed. The misalignment of rules relates to the recovery of outstanding contributions. This is where we get into the discussion about debt, distraining and so on. Opposition Members believe that it is logical to align the two different notice periods—30 days and seven, and 14 for Scotland. Business would then have to deal with only a single procedure for all outstanding contributions. It is perhaps worth putting it on the record that, in making that decision, the Government have diminished the rights of the self-employed, but I share the analysis that I think the Paymaster General expounded on Second Reading—on balance, it is probably a reasonable change to make. Therefore, we do not oppose it. 
 The Paymaster General said that the Government do not intend to amend the appeals procedure. I was looking through the explanatory notes to try to 
 understand how the system will work from now on. They say that the Inland Revenue has a standard debt collection procedure and that one must work through a series of stages to recover debt. However, the notes fail to set out how the procedure works and how it will work when the Bill is enacted. Therefore, coming at the matter from a business point of view, I want to understand what steps those whom the Bill will affect must take. 
 I am concerned with real businesses, but I shall take a hypothetical one—West Bromwich Bloggers Ltd.—so that we can understand how the Bill will affect businesses in practice. Although it is unlikely that the proprietor would find himself in that situation, what would happen if he did? How would he recover the debt and what steps would the business go through? In particular, how would the procedure work if there was a sister business—the West Lothian Wanderers club, perhaps—because, under clause 5(2), the procedures are slightly different in Scotland? I would be grateful if the Paymaster General clarified that.

Norman Lamb: I will limit my comments: I was planning to ask why the Scots require twice as much time as the rest of us, but my hon. Friend the Member for Argyll and Bute (Mr. Reid) has arrived so I feel slightly embarrassed about asking that now.

Rob Marris: It is because they are always late.

Norman Lamb: I am half Scottish, so I have a foot in both camps.
 It would be sensible to align the procedures so that the same process is used for all national insurance. As the Paymaster General said, most national insurance is already collected in the same way as tax and I have no other questions for her on the clause.

Dawn Primarolo: Perhaps I may first cover the point about how the recovery action would work. Of course, a company or individual can challenge a notice of liability at any point through the appeal procedure. We are discussing the final stage when the liability is not in question or has been challenged unsuccessfully, so there is a liability to pay, although there is shyness over doing so. On behalf of all our honest taxpayers who have complied with their obligations, it is only fair to ensure that that liability is paid.
 When a clause 2 debt—the £2 a week—has reached the limit of civil prosecution, which is £130 and could be a year's contribution, it is referred to the debt management service. The Inland Revenue's experience is that if someone has a national insurance debt, they also have debts elsewhere—perhaps a default on tax in other categories. The debt may be an oversight, but it is unusual for the Revenue to be at fault. 
 The person is contacted by phone and advised of the debt as well as the options for payment, which is the same procedure as for tax. That is what happens and the procedure is familiar. If that initial contact does not result in the debt being paid off, further contact is made by phone and letter—usually three phone calls and one letter. If that action fails, the case is referred for formal recovery action either by distraint or through the courts. 
 About 10 to 15 per cent. of cases that are referred to the debt management service reach that stage, but, after that, formal action is taken to recover the debt. It can be recovered through summary proceedings in the magistrates court. That is the preferred option for debts of less than £1,800, distraint action or county court proceedings. The first step towards distraint action in the Revenue is to issue the formal notice of the debt. That informs the person that distraint action will be taken within seven days unless the debt is paid. 
 A lot goes on before that to inform the company and to ensure that it understands it has a liability. If the debt is not paid when the period of notice has expired, the debtor is visited and again asked to pay. If the debt is not paid at that point, distraint is levied. However, fewer than 2 per cent. of visits result in distraint being levied. The debtor then has five days to pay the debt. If it is not settled by the sixth day, the goods can be put up for auction—approximately 2 per cent. of the cases in which distraint is levied result in the sale of the goods. The process works; only a few recalcitrants get right the way through the system, which is how it should be. It is a shame that the Revenue has to engage in so much activity to ensure that people fulfil their legal responsibilities.

Mark Prisk: It is important that we should know how the process will work in practice and whether the proprietor of West Bromwich Bloggers, or whichever company, understands that too. In the Paymaster General's experience, and that of the Revenue, does it appear that, in the majority of cases, deadlines are missed and money fails to be sent due to oversight rather than to malevolence?

Dawn Primarolo: It is difficult to answer that question. Distraint action is triggered only after repeated requests from the Inland Revenue to honour a liability. One can accept that it is possible that there could be an oversight before those intense reminders are given. That is why there is a need to align the processes. Employers are familiar with the process that operates for tax liabilities. Making this subject to the same procedure gives certainty and reduces—let us be generous—the scope for misunderstanding that might arise from a different procedure for recovery.
 I am not saying that there are never exceptional circumstances—the Inland Revenue has provisions to deal with such cases. We are considering people who are clearly informed annually of their responsibilities. It could not be clearer that we all have to pay national insurance, whether we are employed or self-employed. Attempts are made before the formal distraint procedure starts to remind, rather robustly, any company or individual concerned that a liability is outstanding and should be paid now. Even within that procedure, a person has a right to appeal against the liability for class 2 national insurance that can be exercised at any point in the debt recovery process. I cannot think of any exceptional circumstances, but there must, among millions of taxpayers, be one person who encounters an unforeseen scenario—
 something that could not be dreamt up—that we would ultimately accept as meaning that the liability should not be pursued. 
 Bearing in mind what the Public Accounts Committee has said today about pursuing debt, I have to say, as a Minister who has been involved in a large number of Finance Bills, that I often struggle in dealing with financial legislation. All that the legislation seeks to do is to require people to fulfil their obligations under the law, but I am pressed as to whether I am behaving reasonably in putting such powers and actions on the statute book. I was pleased to hear what the PAC said and I look forward to future Finance Bills in which we pursue such points as whether people should pay their tax liability and under what circumstances. 
 Of course it is always right that in pursuing those obligations, the tax authorities behave reasonably. I suppose I would say this, but I think that they do behave reasonably. I am happy to defend with some vigour the right of officials to pursue those debts on behalf of all of us. 
 The final question concerned Scotland and ahs nothing to do with time keeping. It would be ideal if we operated one set of rules throughout the United Kingdom, but it so happens that a slightly different set of rules operate in Scotland, and those are the rules commonly understood that arise from the Debt Arrangement and Attachment (Scotland) Act 2002. I considered that, and my officials advised me on the matter. Bearing in mind that we are trying to assist employers in meeting their obligations, and given that 14 days was the common practice in Scotland, it was sensible to align the provision with that point. I think that is correct. I would have preferred seven days, but it is not worth going to the wire on the issue. We want to encourage people to pay their liabilities, and do not want to have to use distraint as a way of recovering them. 
 I hope that that has dealt with the questions, and I am happy to commend the clause to the Committee. 
 Question put and agreed to. 
 Clause 5 ordered to stand part of the Bill.

Clause 6 - Recovery of contributions, etc: Northern Ireland

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Clause 6 is not a mirror for Northern Ireland of the preceding clause. Clauses 2 and 4 on Northern Ireland have enacted provisions in England and Wales. In this clause, everything that I have said about England and Wales applies, but it introduces distraint in Northern Ireland for the first time, which brings procedures in Northern Ireland in
 line with those of England and Wales. I hope that I have dealt with the point that all the same issues will apply to Northern Ireland, but I did not want to mislead the Committee. There is a new principle in the clause for Northern Ireland, which is the introduction of a procedure for distraint, but I am sure that all hon. Members would accept that as reasonable. I commend the clause to the Committee.

Mark Prisk: I do not intend to delay the Committee, save to say that I welcome the fact that the Paymaster General has flagged up that the change is significant. It is, nevertheless, a welcome change, not least from the point of view of UK-wide businesses, and for those reasons, we shall not oppose it.
 Question put and agreed to. 
 Clause 6 ordered to stand part of the Bill.

Clause 7 - Class 1, 1A, 1B or 2 contributions: powers to call for documents etc: Great Britain

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: This clause removes some powers currently available to the Inland Revenue. It takes the existing Inland Revenue powers to obtain information in tax investigation cases and applies them to certain classes of national insurance contributions. The clause has been widely welcomed and is a reduction in powers for the Inland Revenue. It was thought that, on transfer, the Contributions Agency had considerably wider-ranging powers than the Revenue, with regard to power of entry, power of examination and the power to compel the production of information documents. Some concern about that was raised at the time. The clause removes those substantial powers and introduces the well known, tried and trusted powers that the Inland Revenue now uses, with all the safeguards provided in the Taxes acts. I commend the clause to the Committee.

Mark Prisk: I shall not go through those powers. The Paymaster General is entirely right: the diminution of the powers in relation to national insurance is right. It seems inappropriate to have those powers when one thinks that the amounts involved are usually significantly smaller than those involved with tax. There are benefits to alignment, in creating a single, unified approach, and as such we have no wish to oppose the clause.
 Question put and agreed to. 
 Clause 7 ordered to stand part of the Bill. 
 Clause 8 ordered to stand part of the Bill.

Column Number: 29

Clause 9Compliance regime for statutory sick pay and statutory maternity pay: Great Britain

Compliance regime for statutory sick pay and statutory maternity pay: Great Britain

Question proposed, That the clause stand part of the Bill.

Mark Prisk: The clause seeks to align the procedures for statutory sick pay and statutory maternity pay with national insurance and tax, and in that sense it is similar to clauses 7 and 8. However, there is also a shift from criminal to civil penalties. Given the nature and scale of the offence, that change is to be welcomed on principle. It would be helpful to establish—whether in Committee or, after further research, in writing—what the scale of the offences is. What is the comparative level of the problem for tax, national insurance and the two payments in question? Is there a significant difference in the rate of offending, for example? How does the Paymaster General think the change will affect that difference? Switching to civil penalties is important, because the regulatory impact assessment and the explanatory notes seem to suggest that offences are largely unintended, although not entirely so. A tiny minority try to avoid their responsibilities, whereas most people who fall foul do not have their sums right or fail to meet the deadlines.
 There is a wider point, which is that Governments and Whitehall need to remember that businesses are doing an unpaid job for them by collecting payroll-related sums. Governments of whatever hue save a 
 fortune by having those businesses handle and administer their revenues in that form. We would all do well to bear that in mind. 
 What steps are planned to explain the changes to the business community? It is clear from the regulatory impact assessment that there will be savings, but it is not clear what they will be and how they will work. Will the Paymaster General provide some more meaningful information? Overall, the clause is welcome and we do not wish to oppose it.

Norman Lamb: We also welcome the changes, although I raised two caveats on Second Reading. First, given that the penalty is now a civil penalty, is the level imposed up to the available maximum determined by internal guidance or are there regulations, of which I am unaware, that provide guidance? I should be grateful if the Minister could clarify further how the Revenue determines the level in matters that are already covered by civil penalties and how it will be determined in the present case.
 Secondly, the burden of proof reduces when the change is made from criminal to civil liability, which makes it easier for the body concerned—in this case the Inland Revenue—to impose the penalty and recover a sum from the citizen. We would like reassurance that those powers will be used proportionately. That relates to the point made by the hon. Member for Hertford and Stortford point about the number of prosecutions. My understanding is that there are little or no prosecutions in that area. One suspects that there may be more civil penalties— 
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.